Should you prevent foreclosure & keep the house

28 Nov Should you prevent foreclosure & keep the house

“Home” is laden with such emotional content that it is sometimes hard to think rationally about whether one ought to struggle to save a house in foreclosure. The problem has several facets and there are no universal answers. Here’s my list of issues for further thought.

Home as investment

We have traditionally paid more to own a house than the cost of renting comparable housing. We have counted on the property’s value to increase and often told ourselves that the investment would form a part of our retirement nest egg.

With the downturn in property values, we are faced with the truth that nothing goes unrelentingly up in value. Now, we need to ask whether it makes investment sense to keep paying on the house that has fallen in value.

How long before appreciation returns the property to the value it had when the troubled loan was taken out? What alternative uses could you make of the difference between what it would cost to rent a house and the current mortgage and tax payments?

Bad loan or falling values

Start thinking about solutions to a defaulted loan: could you pay off the present debt balance if the loan were a fixed rate loan at today’s interest rate? Here’s a mortgage calculator. If so, then it might pay to shop for a program that would alter the terms of that loan or replace it with a better one.

If you can’t repay the loan balance and the house is worth at least as much as you owe, it may be sensible to walk away from the house. Even with a better loan, you can’t afford this level of debt.

If the house has fallen substantially in value, work the numbers assuming you had a new loan for 90% of today’s value of the property. Could you afford those payments on a fixed rate, fully amortized loan? If so, look for programs that offer principal reductions or look for a change in the bankruptcy laws to allow judges to rewrite mortgages.

Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.